Apple’s (AAPL) iTunes passed RealNetwork’s (RNWK) RealPlayer in November 2007 to take the No. 2 slot in streaming media players, according to a new report from WebSiteOptimization.com.

Although Microsoft’s (MSFT) Windows Media Player is still No. 1, with nearly a 50% market share, its growth has leveled off over the past year.

In fact, iTunes is the only one of the big four players, including Apple’s own QuickTime, to show positive growth lately. (see chart) As the report puts it:

Growing at an annual rate of 26.8%, iTunes hit a high note while the rest of the band was flat. (link)

RealNetworks was a pioneer in streaming media, having introduced its first player in 1995. Its market share might not be stagnating if it weren’t so hard these days to find the free “basic” player on its website amid all the 14-day trials.

Given the excitement with which the reinvention of Apple TV was greeted when Steve Jobs announced it two weeks ago at Macworld, it’s surprising how little critical attention has been paid to the fact that the free update he promised to deliver by Tuesday has run into a snag.

The news was slipped into an Apple (AAPL) press release about the Macbook Air that was issued on Wednesday. Apple TV’s second coming is now due “in a week or two” or “within two weeks,” depending which paragraph you read.

Why the delay?

The update, according to the release, is simply “not quite finished.” But that hasn’t stopped outsiders from speculating that there might be more going on.

Could it have something to do with that awkward moment in Jobs’ Macworld keynote when he went to demo Flikr photos on Apple TV and the giant screen went blank? (”I’m afraid Flikr’s not serving up the photos today,” he joked, but you know that inside he was fuming.)

Or could the hang-up be, as Valleywag’s Jordan Golson speculates, some last-minute wrangling with the movie studios? If that’s the case, a week or two may be optimistic.

I’m reminded of Daniel Eran Dilger’s lovesong to the new Apple TV posted in Roughly Drafted last week, in which he praised it as “a full fledged, self contained media computer for watching and ordering Internet content” and bid good riddance to Blockbuster.

With the iPhone now running along smoothly at top speed, Apple now has the opportunity to fire up Apple TV as its fourth engine [of growth]. This time, the professional naysayers only have a couple weeks to disgorge their rivers of fear, uncertainty, and doubt before Take Two hits the public’s hands and shows up their analysis as the stupefying nonsense that it is. (link)

Apparently Apple saw fit to give the naysayers another week to two.

Despite the easy availability of pirated music, most U.S. kids in the 9-to-14-year-old “tween” bracket are now paying for at least some of their music downloads.

That’s the key finding of “Kids & Digital Content,” a survey issued Wednesday by the NPD Group. According to NPD, 70% of U.S. tweens download digital music in an average month. Among them, nearly half (49%) used Apple’s (AAPL) iTunes to get their songs and 16% used MySpace (NWS).

However, the second most popular source of digital music, used by more than a quarter (26%) of the group, was the peer-to-peer file-sharing service Limewire.

“The recording industry has focused on high-profile litigation programs as a deterrent, and education initiatives to communicate alternatives to illegal music file sharing,” said NPD vice president Russ Crupnick. “Findings in this report suggest that the industry can still do more to promote specific ways children can obtain digital music legally, through pre-paid accounts and gift cards.”

Of course, all this assumes that the 3,376 kids who sent in completed surveys told the NPD the truth, not what they thought the survey group wanted to hear.

Sometimes you have to listen very closely when Steve Jobs promises something.

When Apple’s (AAPL) CEO introduced movie rentals at Macworld two weeks ago, he demonstrated how films downloaded through iTunes could be sent with one click to an iPod, iPhone or iPod touch.

Then, according to my notes, he said something about “current generation iPods.”

Those three words have got a lot of people on Apple’s discussion boards hopping mad today. It turns out that fifth-generation video iPods purchased as recently as five months ago won’t play those iTunes movie rentals — and not because of any hardware deficiency. Current generation iPods, per the footnote in Apple’s press release here, include only the “iPod classic, iPod nano with video and iPod touch.”

“This is bogus!!!!!” writes user ninzan on one of at least a half-dozen threads devoted to the topic. “I was all up on apple rental now that I find out that I have been locked out i feel like a moronic apple groupie. My 5g Ipod video is apparently too old and my new itouch did not come with video output. i’m screwed”

The only recourse, it seems, is to ask for your rental fee back. According to reader reports, Apple has started to issue refunds.

What’s going on?

Bryan Gardiner at Wired called around and by yesterday had come up with several theories.

Forrester’s James McQuivey thinks it may be a strategy of planned obsolescence — a ploy by Apple to get users to buy new iPods.

Yankee Group’s Carl Howe thinks it might have something to do with the clock-resetting trick some users have discovered for extending the life of a 30-day, 24-hour rental.

The most plausible explanation, to my ear, comes from The Unofficial Apple Weblog’s Christina Warren. She points out here that fifth-generation iPods had a simple analog video output feature (replaced with authentication chip-equipped composite and component AV on the classic, touch and nano with video) that would have allowed rented content to be easily copied. Closing this so-called video hole may have been a requirement imposed on Apple by the movie studios.

Of course, nobody bought a video iPod before September in order to play movies rented on iTunes — an option that didn’t exist at the time. Still, for millions of video iPod owners (disclaimer: I’m one of them), it’s annoying to be so close and yet so far. Clearer disclosure would have been nice. And a refund of a few bucks to users who rented before they discovered the fine print seems like the least Apple could do.

There’s bad news and good in the iPod’s future, says Piper Jaffray analyst Gene Munster in a report to clients issued this morning.

The bad news is that the market for MP3 players is shrinking rapidly. Munster cites NPD data that show year-to-year growth in spending on stand alone players falling from from 131% in 2005 to 17% in 2006 and a contraction of -4% in 2007.

Similarly, Apple (AAPL) saw iPod sale growth rates trail off through 2007, from 50% year-to-year growth in the December 2006 quarter to 5% in December 2007 — the lowest in iPod history. The street is expecting 4% growth in Q2, but given the traditional post-Christmas fall-off in iPod sales, that may be optimistic.

The good news is that Apple’s share of the MP3 player market has remained steady throughout this period (72% of unit sales in ‘05 and ‘06, 70% in ‘07). Moreover, on a dollar-share basis it has been growing, from 71% in ‘04 to 84% in 07. During the first month of iPod touch sales, Apple’s dollar share hit an impressive 90%.

What this suggests to Munster is that Apple will have innovate its way out of what is rapidly becoming a replacement market. Like other analysts, he reads much in Tim Cook’s remarks during last week’s earnings conference call, in which Apple’s COO referred to the iPod touch as the beginning of a “mainstream Wi-Fi mobile platform.” Munster writes:

We believe that the iPod touch is the first of several Internet-connected iPods that Apple is currently developing. Internet connectivity enables applications like e-mail and a web browser to add significant value to the iPod lineup, which will drive incremental growth and spur the replacement cycle for current iPod owners. With 70% market share, we believe Apple is positioned to transform the MP3 market into a portable computing market.

Using iSuppli data, Munster estimates that it costs Apple $15 to add a Wi-Fi radio to an iPod and roughly $30 to add a multi-touch screen. And what could you do for that extra $45? Among other things, says Munster, you could buy lattes:

For starters, as we have seen with the iPod touch and the iPhone, e-mail, full-featured web browsing, a mobile iTunes Store, YouTube, and Google Maps are all possible on an iPod. An Internet-connected iPod could even stream content from users libraries hosted remotely, which would eliminate the capacity issues surrounding locally stored media. Another interesting possibility includes additional consumer applications like wireless purchasing for convenience. If for example you are on your way to Starbucks, you could wirelessly order your drink from your iPod, pay for it using your iTunes account or the attached credit card, and pick it up without ever standing in line or waiting at a cash register.

Having stirred up a hornet’s nest with his first take in the so-called missing iPhones, Bernstein Research’s Apple (AAPL) specialist Toni Sacconaghi has taken a second look at the discrepancy between the number of iPhones Apple sold (3.75 million through Dec. 29) and the number AT&T (T) actually activated (just under 2 million through Dec. 31).

His conclusion: most of the devices he describes as “missing in action” are not sitting in warehouses, as he originally surmised, but were siphoned off into the gray market for unlocked iPhones. His best guess is that in 2007 as many as 1 million iPhones may have been hacked by resellers and activated by carriers that are not paying Apple a kickback on every monthly charge.

This is a big problem for Apple, says Sacconaghi. For every 1 million iPhones that get sold for unlocking, the company forgoes, by his calculation, $300 to $500 million in future revenues and profits.

Here’s the dilemma as he sees it:

If Apple were to somehow stop the sale of unlocked iPhones (by forcing customers to activate them at the point of purchase, say) the company might miss its target of selling 10 million iPhones in 2008 — and forgo even more revenue and profit.

But if Apple does nothing, it gets hit with a double whammy. Not only are its healthy gross margins reduced (unlocked iPhones generate 50% less revenue for Apple and 70-75% less profit, according to Sacconaghi), but growing new markets overseas gets harder. If the company can’t stop the flow of unlocked iPhones into a country like China, what’s the incentive for a Chinese carrier to pay the stiff premium Apple demands for the right to be that country’s exclusive carrier?

Sacconaghi continues to believe — almost alone among major analysts — that Apple will have a hard time reaching its goal of selling 10 million iPhones in 2008.

“In order to achieve this target,” he writes, “we expect Apple will have to lower the iPhone’s price, introduce new (likely lower-end) models, and/or forego revenue-sharing in certain geographies, all of which would compromise the iPhone’s economics.”

Of course, it’s widely expected that Apple will lower the price and introduce new models this year. It remains to be seen whether it will have to do anything about those sweet revenue-sharing deals it’s been cutting with the carriers.

End-of-year sales figures for Apple’s (AAPL) iPhone in Europe are trickling in, but not in any form that can be definitively pieced together.

That latest news comes from Germany, where the head of Deutsche Telekom’s T-Mobile division said in an online interview Saturday that it had signed on 70,000 customers in the 11 weeks since the device went on sale. (link)

What’s not clear is whether that number represents iPhone sales or iPhone activations — an important distinction in T-Mobile’s case because for 2 of those 11 weeks it was required by court order to sell unlocked iPhones. Despite the stiff 999 euro ($1,460) price tag it set for unlocked iPhones, the company reported at the time that “many sold.” Assuming those buyers activated their iPhones with other carriers, they cannot be counted as T-Mobile customers.

France Telecom’s Orange division, meanwhile, reported in early January that it sold 70,000 iPhones in just four weeks. But Orange did say how many iPhones it had activated — sure to be less than 70,000 because Orange was required by French law to sell unlocked iPhones during the entire period.

O2, the exclusive carrier of the iPhone in the U.K., hasn’t issued any sales figures yet, but the Financial Times, citing unnamed “people familiar with the situation,” claims sales in the first 8 weeks came in at 190,000. (link)

Four weeks, 8 weeks, 11 weeks. Activated, sold. Locked, unlocked. There’s no logical way to sort those number out.

But that hasn’t stopped U.S. analysts. When trying last week to unravel the discrepancy between Apple’s iPhone sales (3.7 million in 2007) and AT&T’s activations (less than 2 million), Bernstein’s Toni Sacconaghi and Piper Jaffray’s Gene Munster both seem to have toted up those numbers, added a fudge factor, and come up with 350,000. (See The case of the missing iPhones.)

Is 350,000 good or bad? It’s hard to tell. O2 said it was “happy” with its sales figures, although they seem to have come in below O2’s initial target of 200,000 units. Similarly, France Telecom said its 70,000 sales were well within its target range of 50,000 to 100,000, although as Wired points out, CEO Didier Lombard told Europe 1 radio he hoped to sell 100,000 iPhones before the end of the year, not 50,000 to 100,000. (link)

Deutsche Telekom, perhaps wisely, doesn’t seem to have issued any public sales target. What Philipp Humm, head of T-Mobile Germany, did say in that online interview yesterday, according to Reuters, is that “the iPhone is by far the most sold multimedia device in T-Mobile’s portfolio.”

That I believe.

The talk among Apple (AAPL) watchers today is Toni Sacconaghi’s dogged pursuit of the 4 million iPhones Steve Jobs claimed to have sold as of Jan. 15, the date of his Macworld keynote speech.

AT&T (T), the iPhone’s exclusive U.S. carrier, reported yesterday that it had activated “just at or just slightly under 2 million” iPhones. That’s quite a discrepancy.

Sacconaghi, Sanford Bernstein’s Apple specialist, did the math and concluded in a report to clients that there are roughly 1.4 million iPhones “missing in action,” either unlocked or sitting in inventory. Assuming that 20% of those iPhones were purchased to be unlocked (a generous assumption given that a jailbreak for the latest iPhone firmware was only released yesterday), he believes that there are at least 670,000 gathering dust somewhere — in warehouses, perhaps, or in closets, as unwanted Christmas presents waiting to be returned.

Here’s how he gets that number:

• 3.75 million iPhones sold as of Dec. 29 (per Apple’s Q1 report)
• minus less than 2 million iPhones activated through AT&T as of Dec. 31 (per AT&T)
• minus 350,000 iPhones sold in Europe via O2, T-Mobile and Orange
• minus 750,000 iPhones purchased to be unlocked
• equals 670,000 unaccounted for

Sacconaghi concludes:

This is negative in two ways: (1) it indicates end-user demand for iPhone is lower than many investors may think based on Apple’s sales figure; and (2) it points to slower iPhone sales in the current quarter, since much of this inventory is likely to be drawn down.

Of course, compared to other Apple analysts, Sacconaghi is something of a bear. One day before the Q1 earnings report and the subsequent run on Apple shares, he went out on a limb and predicted that the company would sell only 7 million iPhones in 2008. That’s considerably less than the 10 million target Steve Jobs set — a goal COO Tim Cook said on Tuesday he remained “very confident” they would hit.

Most Apple watchers shared Cook’s confidence, given the 4 million number Jobs had trotted out at Macworld. Today they’re singing a different tune.

“Apple might have a demand problem,” writes Tom Krazit at CNET.

Russell Shaw at ZDNet says the iPhone is at a “crossing the chasm” moment, stuck between early adopters and the mainsteam, and predicts that to survive its price will have to come down to $299 by the end of May at the latest.

Ewan McLeod at the U.K.’s SMS Text News waxes positively elegiac in a post entitled “The Apple iPhone will only ever be a bit player”:

The geeks have all bought one and many have got theirs unlocked. The Nike wearing Soho crowd have splurged the cash. The wannabes and the I-must-have-that crowd have weighed in, swapped networks and got their devices. But that’s it. There’s a ton of people all sitting staring at the iPhone and — SADLY — (this is the bit that’s winding me up), turning their backs and walking away. (link)

This may be premature. A lot could change in the next 50 weeks. New apps. A 16 GB iPhone. A 3G model. New price points. New markets in Canada, Thailand, and maybe even China.

But one thing is certain: having promised and repromised to sell 10 million iPhones in 2008, there will be hell to pay in 2009 if Apple falls even a little bit short.

UPDATE: In a report to clients today, Piper Jaffray’s Gene Munster weighs in on the mystery. He notes that although Apple declined to provide inventory levels for the iPhone, even when questioned directly during the Q1 conference call, it did offer inventory numbers for the Mac (4-5 weeks) and the iPod (6 weeks). Splitting the difference, Munster estimates that normal inventory for the iPhone is 5 weeks. By his math, that puts 512,000 iPhones in European and American warehouses, 350,000 sold through internationally, and 838,000 — or 25% — sold to be unlocked.

It may come as some consolation to the investors who lost their shirts as Apple (AAPL) shares collapsed over the past month that nobody lost more, at least on paper, than its CEO.

As the company’s largest individual stockholder, with 5,546,451 shares directly owned, Steve Jobs (were he paying attention) could have watched the value of his holdings drop from $1.126 billion just before Christmas to $771 million at Wednesday’s close, a paper loss of $354 million.

Over at Walt Disney Co. (DIS), where Jobs is also the single largest stockholder, the news is even more grim. The value of the 138 million Disney shares he owns (thanks to the sale of Pixar two years ago) fell from a pre-Christmas high of $4.588 billion to $3.935 billion yesterday, a loss of $652 million.

That’s a total hit of just over $1 billion in the space of a month.

Of course, these are just paper losses. Like any shareholder, Jobs doesn’t actually lose a penny unless he sells his stock at the lower price. But given the fact that his annual salary is once again a symbolic $1, this might not be a bad time for Apple’s board to start looking for another way to compensate its hard-working CEO. At least that’s how Fake Steve Jobs sees it:

I just called Peter Oppenheimer and told him to get into position with the options machine and be ready to begin firing on my order. We’re going to wait and see how bad things get today. I think this might be a golden opportunity for a handful of top insiders to make some quick money. Ideally we’d like to see the stock get down below $100. Keep your fingers crossed! Daddy needs a bigger jet. (link)

As expected, Apple (AAPL) had a very merry Christmas, posting the best quarter in its 32-year history, with earnings up 58% over the same period last year. (link) But the good news fell on deaf ears in a market roiled by the broader meltdown.

And the company’s conservative projections for the next three months seems to have spooked investors attuned for signs of a coming recession. Apple’s shares, having closed at 155.64, down 3.5% for the day, plunged more than 12% in after-hours trading. At one point the stock hit 136.75, a four-month low.

If this were any other company, the market’s reaction would have seemed bizarre. Except for sales of its iPods, which have nearly flattened out at 22.1 million units, the company’s results were strong across the product line, beating both Apple’s and its analysts’ expectation.

The company posted revenue of 9.6 billion and earnings per share of $1.76 (compared with the consensus of 9.46 billion and EPS of $1.61). Apple sold 2.3 million iPhones in the quarter that ended in December and 2.319 million Macs, an increase of 44% year to year. (Desktop sales grew 53%, five times faster than the rest of the PC industry, per IDC.)

“The Macintosh business is on fire,” COO Tim Cook said during a conference call with analysts (transcript), noting that more than half of the sales of Macs in Apple’s 204 stores were to new customers.

But Apple is not any stock. The market has come to expect extraordinary earnings growth, especially in the Christmas quarter. Traders instead seemed obsessed with Apple’s forward-looking guidance. Although the company projected sales for the March quarter of $6.8 billion, up 29% year to year from 2007, its projected earnings per share of 94 cents were considerably below Wall Street’s average $1.09 forecast.

Quizzed by skeptical analysts, who’ve been low-balled by Apple’s guidance more than once in the past, CFO Peter Oppenheimer seemed almost apologetic. “We’ll leave the economic forecasting to others,” he said. “We are focused on managing our busines

Piper Jaffray analyst Gene Munster confessed that in his five years of covering Apple he’s never seen anything like the market’s reaction to these earnings. “I talked to one of our technical analysts before the call and he told me that the stock was going down to 130 no matter what results Apple posted,” Munster said in a phone interview. “Something bigger is going on in people’s minds. There’s a feeling that stocks need to go back to their 200 day averages as the market corrects itself. This is not a bullish sign for other tech stocks going forward.”